How to Use the Confidential Filing Process Under the US JOBS Act

The number of Chinese companies pursuing US listings has not recovered to pre-2021 levels, but the pipeline is quietly building through a mechanism that remains underutilised by PRC issuers: the confidential filing process under Title I of the US Jumpstart Our Business Startups (JOBS) Act. As of Q1 2025, only 12 PRC-based companies have completed a US IPO via confidential filing since the PCAOB audit access resolution in December 2022, according to data compiled by Wind Information and SEC EDGAR filings. This compares to over 40 Hong Kong-listed Chinese companies that have used the HKEX confidential filing regime (introduced in November 2021 under Listing Rule 23.05B) in the same period. The gap is not a function of regulatory hostility — the SEC has accepted 28 confidential draft registration statements from China-based issuers since January 2023 — but of structural misunderstanding. CFOs, sponsors, and PRC legal counsel routinely misapply the JOBS Act eligibility criteria, misunderstand the interaction with the Holding Foreign Companies Accountable Act (HFCAA), and fail to sequence the confidential filing window with the parallel HKEX A1 process for dual-primary or secondary listings. This article dissects the mechanics, eligibility triggers, and timing traps that determine whether a confidential filing saves time or creates liability.

The JOBS Act Eligibility Framework for PRC Issuers

Defining “Emerging Growth Company” Under Section 101

The confidential filing privilege is not available to every issuer. Section 101 of the JOBS Act, codified as Section 2(a)(19) of the Securities Act of 1933, defines an “emerging growth company” (EGC) as an issuer with total annual gross revenues of less than US$1.235 billion during its most recently completed fiscal year. This threshold is adjusted for inflation every five years; the SEC raised it from US$1.07 billion to US$1.235 billion effective April 2022. For a PRC-based issuer, the revenue calculation must include all consolidated subsidiaries under PRC GAAP or IFRS as filed in the registration statement, including any variable interest entity (VIE) structures where the issuer is the primary beneficiary under ASC 810-10 or HKFRS 10.

A common error occurs when PRC issuers attempt to exclude VIE revenues on the argument that the VIE is not a legally owned subsidiary. The SEC Staff has consistently taken the position that for EGC eligibility, revenue includes the VIE’s top-line figures if the issuer consolidates the VIE in its audited financial statements. In SEC Compliance and Disclosure Interpretations (C&DIs) Question 101.01 (updated December 2023), the Staff explicitly states that “an issuer must determine its annual gross revenues on a consolidated basis in accordance with US GAAP or IFRS as used in the registration statement.” This means a PRC education or technology company with a VIE generating US$1.4 billion in revenue cannot claim EGC status even if the VIE’s equity is held by PRC nationals.

The Five-Year Sunset and the Public Float Trigger

EGC status is not perpetual. Section 107 of the JOBS Act provides a maximum five-year period from the date of the company’s first registered sale of common equity securities under the Securities Act. The clock starts on the IPO pricing date, not the confidential filing date. A PRC issuer that files confidentially in January 2025 and prices in July 2025 has EGC status until July 2030, provided it does not cross the public float threshold earlier.

The public float trigger under Section 2(a)(19)(B) terminates EGC status on the last day of any fiscal year in which the issuer’s public float exceeds US$700 million. For a US-listed PRC company with a dual listing in Hong Kong, the public float calculation includes only shares held by non-affiliates in the US market, not the Hong Kong-listed tranche. This creates a planning opportunity: a PRC issuer can maintain EGC status longer by limiting the US offering size and relying on a parallel Hong Kong placing for capital raising, as long as the Hong Kong shares are not registered under the Securities Act.

Mechanics of the Confidential Submission Process

Draft Registration Statement Requirements Under Section 6(e)

The confidential filing process under Section 6(e) of the Securities Act (added by Section 106 of the JOBS Act) permits an EGC to submit a draft registration statement to the SEC for non-public review. The draft must be substantially complete — meaning it includes audited financial statements for the most recent two fiscal years, a management discussion and analysis (MD&A) section that meets Item 303 of Regulation S-K, and a description of the VIE structure where applicable. The SEC Staff will not review a draft that omits material sections or contains placeholder language.

For PRC issuers, the SEC has imposed an additional requirement through its December 2022 HFCAA implementation guidance: the draft registration statement must include a specific VIE disclosure section that complies with the SEC’s March 2021 statement on VIE structures. This section must quantify the VIE’s contribution to revenue, net income, and total assets, and include a risk factor stating that the investor is purchasing shares in a Cayman Islands holding company, not the PRC operating entity. Failure to include this language results in the SEC Staff returning the draft as incomplete, which resets the review clock.

The Non-Public Review Cycle and Timing

The SEC Staff typically provides initial comments on a confidential draft within 30 calendar days, though the actual timeline varies by the complexity of the VIE structure and the issuer’s industry. For a standard PRC technology issuer with a clean audit opinion and no HFCAA complications, the average first-round comment period in 2024 was 27 days, based on a review of 18 confidential filings by China-based EGCs tracked by the China Securities Journal. The issuer then has 30 days to respond, though extensions are routinely granted.

The critical timing trap for PRC issuers is the interplay with the HKEX A1 filing. Under HKEX Listing Rule 23.05B, a confidential A1 submission is available for “experienced” applicants — those with a market capitalisation of at least HK$10 billion — but the HKEX requires the issuer to publicly file its A1 proof within 24 hours of the SEC publicly filing the registration statement. This means a PRC issuer pursuing a dual US-HK listing cannot keep the US filing confidential after HKEX public filing, and vice versa. The sequencing must ensure that both regulators receive the same set of financials and risk disclosures, or the issuer faces a divergence comment from one regulator.

Public Filing Trigger and the 21-Day Rule

Section 6(e)(2) of the Securities Act requires the EGC to publicly file its registration statement no later than 21 days before the date on which the issuer conducts a “road show” as defined in Rule 433(h)(4) of the Securities Act. The SEC Staff interprets “road show” broadly to include any investor presentation, including a management call with potential investors arranged by the sponsor. This creates a practical constraint: the issuer must have a publicly filed registration statement on EDGAR at least 21 calendar days before the first investor meeting.

For PRC issuers, this 21-day window is often the point at which the HFCAA compliance question becomes live. The PCAOB must have access to the issuer’s audit working papers in mainland China or Hong Kong. If the issuer’s auditor is a PRC-based firm that has not yet been inspected by the PCAOB, the SEC may refuse to accelerate the registration statement’s effectiveness, effectively blocking the IPO. As of April 2025, the PCAOB has inspected 23 PRC-based audit firms, including the Big Four’s China affiliates, but the inspection reports for 2023 and 2024 remain pending for several second-tier firms.

Cross-Border Structuring Considerations

VIE Disclosure and the SEC’s Enhanced Scrutiny

The SEC’s March 2021 statement on VIE structures, issued by the Division of Corporation Finance, requires all China-based issuers using a VIE to include prominent disclosure on the cover page of the prospectus stating that the issuer is not a PRC operating company and that the VIE structure poses unique risks. For confidential filings, this disclosure must appear in the draft registration statement’s cover page and in the risk factors section. The SEC Staff has rejected at least three confidential draft submissions from PRC issuers in 2024 where the VIE disclosure was buried in the risk factors rather than on the cover page.

The SFC in Hong Kong has taken a parallel approach. In its December 2023 circular on VIE structures in Hong Kong listing applications, the SFC stated that it expects the VIE disclosure in the prospectus to include a legal opinion from PRC counsel confirming the VIE’s compliance with PRC foreign investment restrictions. For a dual US-HK filing, the same PRC legal opinion should be filed with both the SEC and the HKEX to avoid inconsistency. The HKEX Listing Division has confirmed that it will accept the SEC-filed VIE disclosure as satisfying HKEX Listing Rule 19A.04(3) requirements, provided the disclosure is in English.

The HFCAA Audit Trail Requirement

The HFCAA, enacted in December 2020 and codified at 15 U.S.C. § 7213(c), requires the SEC to prohibit trading in the securities of any issuer whose auditor has not been subject to PCAOB inspection for three consecutive years. For a PRC issuer filing confidentially, the relevant question is whether the auditor’s PCAOB inspection status is current as of the date the registration statement is publicly filed. If the issuer’s auditor was last inspected in 2021 and the PCAOB has not conducted a subsequent inspection, the issuer may be placed on the SEC’s “conclusive list” of non-compliant issuers, triggering a trading ban 180 days after the listing.

The practical solution adopted by most PRC issuers in 2024-2025 is to engage a US-based PCAOB-registered auditor that maintains a practice in Hong Kong. Deloitte China, PwC China, EY China, and KPMG China have all maintained PCAOB registration since December 2022, when the PCAOB’s HFCAA determination was reversed. However, the cost differential is material: a US-based PCAOB audit for a PRC issuer with a VIE structure costs between US$1.2 million and US$2.5 million per year, compared to US$400,000 to US$800,000 for a PRC-only audit, according to fee disclosures in 2024 F-1 filings.

Dual Listing Sequencing: US First or HK First?

The sequencing decision between a US confidential filing and a HKEX A1 filing depends on the issuer’s primary regulatory nexus. For a PRC issuer that is a “Mainland China company” under HKEX Listing Rule 19A.04, the HKEX requires a pre-filing consultation with the Listing Division if the issuer has a VIE structure. This consultation typically takes 4-6 weeks and results in a letter of no-objection. Filing the US confidential draft before completing this HKEX consultation creates a risk: the SEC may publicly file the registration statement before the HKEX consultation is resolved, forcing the issuer to disclose the VIE structure publicly without HKEX clearance.

The safer sequencing, used by 8 of the 12 PRC companies that completed US IPOs in 2023-2024, is to complete the HKEX pre-filing consultation first, then file the US confidential draft, then file the HKEX A1 confidentially, and finally trigger public filing for both simultaneously. This chronology ensures that the VIE disclosure is reviewed by both regulators before any public filing, reducing the risk of a last-minute SEC comment that delays the road show.

Practical Compliance and Risk Management

Sponsor Liability Under HKEX Listing Rules

For a dual-listed PRC issuer, the sponsor (保薦人) appointed for the Hong Kong tranche must comply with HKEX Listing Rule 3A.02, which requires the sponsor to conduct reasonable due diligence on the issuer’s VIE structure and confirm that the VIE arrangements are legally enforceable under PRC law. The sponsor’s due diligence report must be submitted to the HKEX as part of the A1 filing. If the US confidential filing proceeds first, the sponsor must ensure that its due diligence findings are consistent with the disclosure in the SEC draft, or the HKEX may issue a comment under Listing Rule 23.05B(12) requiring the sponsor to explain the discrepancy.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (paragraph 17.6) imposes a similar obligation on the sponsor to ensure that all material information disclosed to one regulator is also disclosed to the other. In practice, this means the same VIE legal opinion, the same auditor’s letter on internal controls, and the same management representation letter must be filed with both the SEC and the HKEX. Any variance, even in wording, can trigger a regulatory inquiry.

The 2025 PCAOB Inspection Cycle

The PCAOB’s 2025 inspection cycle for China-based audit firms will be the third since the December 2022 resolution. The PCAOB has stated in its 2024 annual report that it intends to inspect each China-based firm with more than 100 issuer audit clients every two years. For a PRC issuer filing confidentially in 2025, the key question is whether its auditor was inspected in 2023 or 2024. If the auditor was not inspected in either year, the issuer faces a material risk that the PCAOB will issue a negative inspection report during the IPO process, which the SEC may use as grounds to refuse acceleration.

The practical response is to request a pre-filing consultation with the SEC’s Division of Corporation Finance to confirm the auditor’s eligibility. The SEC will not provide a binding determination, but the Staff’s informal guidance can help the issuer assess the risk. In 2024, the SEC rejected acceleration requests for two PRC issuers whose auditors had not been inspected since 2021, effectively killing the IPOs.

Confidential Filing as a Strategic Option, Not a Default

The confidential filing process is not always the optimal path. For a PRC issuer with a simple corporate structure, no VIE, and a US-based auditor, the standard public filing process may be faster because it avoids the 21-day public filing window before the road show. The confidential filing adds approximately 60-90 days to the overall timeline due to the non-public review cycle, the need to synchronise with HKEX, and the additional legal work required for VIE disclosure.

The decision should be based on the issuer’s revenue trajectory relative to the US$1.235 billion EGC threshold, the auditor’s PCAOB inspection history, and the HKEX pre-filing consultation timeline. For issuers with revenue approaching the EGC cap, the confidential filing may be the last opportunity to use the JOBS Act benefits before losing EGC status. For issuers with simple structures, the standard filing is faster and cheaper.

Actionable Takeaways

1. Confirm EGC eligibility by calculating consolidated revenue including VIE contributions under US GAAP or IFRS, and verify that the most recent fiscal year’s revenue is below the US$1.235 billion inflation-adjusted threshold.

2. Complete the HKEX pre-filing consultation on VIE structures before submitting the US confidential draft registration statement to avoid a sequencing mismatch that forces premature public disclosure.

3. Engage a PCAOB-inspected auditor with a current inspection record (inspected within the last two years) and budget US$1.2-2.5 million annually for the audit, reflecting the premium for US-based PCAOB compliance.

4. Prepare the VIE disclosure as a standalone section in the draft registration statement with cover-page prominence, and ensure the same disclosure is filed with both the SEC and the HKEX to avoid regulatory divergence.

5. Plan for a minimum 60-day confidential review cycle before the 21-day public filing window, and do not schedule the first investor road show earlier than 90 days after the initial confidential submission date.